3 Logistics KPIs that Reveal Critical Cost-Cutting Opportunities

When it comes to measuring your supply chain, logistics, and warehouse operation, it’s all about finding ways to move the needle. When you’re in charge, you’re always looking for opportunities to cut costs, eliminate unnecessary waste, and improve the bottom line—and the right key performance indicators (KPIs) can help you get there faster and more easily.

Unfortunately, many businesses still aren’t harnessing the power of robust business intelligence, including analytics and data visualizations—or worse, they’re tracking the wrong KPIs and ending up lost in the weeds.

In this post, we’ll take a close look at three critical KPIs that offer meaningful insight into your logistics operation, then discuss some of the tools and strategies that can help you stay on top of them.

Freight Cost Per Unit

Calculating your business’s freight cost per unit is simple: just divide the total freight costs by the number of units shipped (per period, e.g. month). Your units might be weight (e.g. pounds) or simply units of product, especially if you’re shipping many of the same item.

But it’s not about the calculation alone—freight cost per unit is important largely because keeping an eye on this number can help you to cut costs and minimize losses from freight expenses. Monitor freight cost per unit continually, and you’ll see opportunities to reduce it month over month and year over year—whether that means increasing efficiency on the fulfillment end or taking charge of your price negotiations with carriers (an area in which MCG can be of significant help).

Transportation as a % of Sales

Transportation as a % of sales can be calculated by dividing transportation costs (inbound and/or outbound freight) by total net sales, and is an especially critical KPI for manufacturers. In fact, this one KPI can clue you into the overall health of your logistics efficiency—and whether your current approach is actually cutting costs and improving the bottom line.

Transportation and logistics costs vary by industry, but on average, companies that aren’t managing their logistics efficiently have 9% to 14% costs as a percentage of sales. But for companies adopting an “efficiency management approach,” that number drops to an amazing 4% to 7%.

That represents a huge opportunity for potential savings—about $250k to $350k a year, assuming annual sales of $5 million. And if you’re not there yet, this all-important KPI will be like a flashing red light that reveals a tremendous savings opportunity.

Freight Bill Accuracy

Freight bill accuracy is yet another deceptively simple and highly significant KPI for locating potential savings. It’s calculated by taking the number of error-free freight bills, after an audit, and dividing that by the total number of bills per period. The final percentage will help to reveal exactly how much you could save with fewer errors and improved auditing.

While you’re thinking about it, consider whether you’re performing a thorough internal audit. Although outsourcing your bill auditing to a third-party logistics (3PL) provider may be a step in the right direction, many executives and managers don’t realize that 3PL providers often have relationships with carriers that can cloud their judgment.

In fact, with MCG performing their internal audits, our current clients are saving anywhere from 3% to 7% per month.

Each of these KPIs reveals an opportunity to improve logistical efficiency and cut costs that directly affect your business’s bottom line—and with business intelligence (BI) tools from MCG, you’ll have access to detailed dashboards, data visualizations, and expert KPI consulting from experienced senior level analysts. From there, we can help you monitor everything from shipping costs to freight bill errors, finding concrete, effective ways to save you money and power your business forward.